Secrets to successful
manufacturer-retailer
collaboration
More companies can reap the benefits of supply-chain collaboration if they pay
attention to six success factors.
Andreas Brinkhoff and
Jochen Großpietsch
A growing number of consumer-goods manu-
fulfillment” as the two most important topics
facturers and retailers are working together to
for future collaboration.
improve their performance. Such collaboration—
partnering on initiatives that extend beyond
The rewards for supply-chain collaboration can
day-to-day business and that aim to deliver
be substantial. A recent study by the Grocery
significant long-term value for both parties—is a
Manufacturers Association estimated the total
welcome alternative to price-driven (and at times
opportunity (in cost savings and margin) for the
antagonistic) supplier-retailer relationships. In a
US consumer sector at $10 billion; in Europe,
2012 survey of 140 companies, conducted by
which has a more fragmented consumer industry,
ECR Europe and McKinsey, all respondents said
the number would probably be even higher. The
they collaborate in at least one area of their
ECR−McKinsey survey respondents reported
business; more than half said they collaborate in
that successful collaboration, on average,
at least six areas.1
resulted in a 4.4 percent decrease in out of
stocks and a cost reduction of 5.4 percent
1 Collaboration today and
tomorrow—taking the right
steps on the path to impact,
ECR Europe and McKinsey
& Company, May 2012,
mckinsey. com.
Traditionally, retailers and manufacturers’
(exhibit). The research firm Advantage, in its
collaborative efforts have focused on
2013 review of retailer-manufacturer collab-
commercial areas such as in-store programs
oration in the US market, found that the most
and merchandising. The survey indicates this
collaborative companies increased revenues by
is changing: recognizing that supply-chain
3.7 percent more than the average company.
performance will be critical to controlling costs
The magnitude of these improvements is backed
and improving service in the coming years,
up by our analysis of more than 100 cases of
survey participants ranked “supply-chain flows
successful supply-chain collaboration over
and processes” and “demand planning and
the years.
55
Retail and Consumer Perspectives 2014
Collaboration
Exhibit 1 of 1
Exhibit
Successful collaboration offers many benefits.
Most important collaboration
areas for coming years1
Supply
chain
1 Supply-chain flows and processes
2 Demand planning and fulfillment
Commercial
Average impact reported
by respondents1
4.4% decrease in out of stocks
5.4% decrease in costs
3 Category product assortment
4 Promotion strategy and calendar
6.3% increase in sales
3.9% increase in profits
5 In-store layout/visual merchandising
1 As
reported by 140 survey respondents from 13 countries.
Source: Collaboration today and tomorrow—taking the right steps on the path to impact, ECR Europe
and McKinsey & Company, May 2012, mckinsey.com
We’ve found that some of the largest companies
suppliers are working more closely with retailers
are among the most active collaborators, and
to reduce out-of-stock rates (as Coca-Cola is
increasingly these organizations are scaling
doing) or to continuously refine delivery
up collaboration initiatives from small, local
processes (as Unilever is doing). To improve
pilot projects to solutions that are deeply
planning, Nestlé piloted a new role—the
anchored in core processes. For instance,
customer-based coordinator, who works
retailers such as Tesco and Wal-Mart have
exclusively with a specific retailer—in its supply-
collaborated with suppliers to establish clear
chain teams in Spain and the United Kingdom
logistics standards. Market leaders, as well as
and has since rolled it out across Europe.
midsize retailers like the German drugstore dm,
are giving suppliers access to important data,
Yet, despite the cost and effort invested by both
such as SKU-level order forecasts. Some
parties, 40 percent of collaboration efforts fail to
56
Perspectives on retail and consumer goods Summer 2014
deliver sustained impact. One reason is that
through discounts or price increases. Some
benefits still tend to be distributed inequitably:
companies have established joint benefit pools,
according to our survey respondents, retailers
using the savings to fund cost-reduction efforts or
typically gain more from collaboration efforts
sales-improvement programs.
(about 8 percent in cost reduction) than their
manufacturing partners do (2 percent).
3. Select partners based on capabilities,
Respondents further cite insufficient resources,
strategic goals, and value potential. Many
lack of leadership support, and reluctance by
companies aim to collaborate with their largest
one or both parties to share information as the
suppliers or customers—but the largest partner
primary reasons collaborations don’t last.
may not be the best one. A smaller partner may
invest more in a collaboration effort than a large
Based on the survey results and our industry
partner who is already juggling similar efforts.
experience, we have identified six steps
A better approach is to assess potential partners
that can make the difference between a
across three dimensions. First, is there enough
productive collaboration and a frustrating one.
potential value in collaborating with this partner?
(In any collaboration effort, parties should
Second, do both parties have sufficiently
ensure they are in compliance with local laws
common strategic interests? Third, does the
and requirements.)
partner have the infrastructure and processes
1. Collaborate in areas where you have solid
the collaboration?
in place to provide a strong foundation for
footing. The most successful collaborations
build on strengths rather than compensate for
4. Dedicate cross-functional resources and
weaknesses. A manufacturer seeking to
ensure senior-leadership involvement.
collaborate with a retailer in the hopes of
A successful collaboration begins at the top,
improving its forecasting performance, for
with a steering committee of senior leaders who
instance, will have little to gain from access to
not only set the defining vision for the effort, but
the retailer’s point-of-sale data unless it has the
also have the power to allocate the necessary
in-house analytical capabilities to make effective
resources to support it. A cross-functional team
use of those data.
consisting of representatives from both
organizations designs the initiative and carefully
2. Agree on benefit-sharing models. Rather than
considers its operational implications. For
shying away from seemingly unbalanced
example, the team for a demand-planning effort
collaborations, companies can make them work by
should include representatives from the
recognizing the potential imbalance, identifying the
manufacturer’s sales, finance, and supply-chain
benefits of collaboration, and developing ways to
functions and the retailer’s purchasing,
share the benefits more fairly—for example,
merchandising, and store-operations functions.
Secrets to successful manufacturer-retailer collaboration
57
5. Jointly manage performance and measure
6. Collaborate for the long term. The final
impact. Both parties should use the same
ingredient for a successful collaboration is
metrics and performance-management system.
stamina. Through joint planning sessions and
Selecting the right metrics inevitably involves
multiyear performance metrics, both parties must
trade-offs. For example, to reduce logistics
define long-term objectives and develop a road
costs, the partners may have to choose between
map for future collaborative initiatives, while
a pallet configuration suited to a retailer’s
being mindful of and capturing quick wins to gain
restocking process, which will reduce in-store
momentum for the effort.
labor costs, and one optimized for truck fill,
which will reduce transportation costs between
the distribution center and the store. We
The payoff from collaborative efforts can be
recommend that partners select and track the
tremendous. Although successful collaboration is
smallest number of metrics required to provide a
neither quick nor simple, it is certainly
clear picture of the effort’s overall performance.
achievable—and definitely worthwhile.
Partners should schedule regular problemsolving sessions to address trade-offs.